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Advantages ofneobanks for banks,retailers andclients.


How does the rise of neobanks impact banking relations, retailers and clients? 

Over the past four years, the neobanking market has grown rapidly, with an estimated worth of about 722.6 billion USD by 2028. Traditional banking has been disrupted by these innovative players. 

We shall explore this evolution with Éric Delannoy, president and founder of Tenzing Conseil, an operational strategy consulting firm specializing in the banking sector. Fighting against social determinism, Tenzing Conseil changed its recruitment policy: it hires consultants based on their skills, not their level of education. 

Delannoy tells us what we need to know about the impact of neobanks on banking relations, retailers and clients, and about the advantages and stakes of such a transformation. 

What are the advantages of neobanks for traditional banks ?

Although they see them as competition, the big banking groups often acquire neobanks. For example, Arkéa has Fortunéo, BNP Paribas has Hello Bank and Compte Nickel. 

Neobanks act as internal laboratories to develop new banking possibilities and stimulate innovation. They also encourage traditional banks to reinvent themselves, including their omnichannel services and user experience. Since COVID-19, the share of online banks and neobanks on the European banking market has grown considerably. In 2017, online banks represented 49% of the European market. They are thus the drivers of competition in the banking sector. 

Moreover, the reduction of management costs is a convincing argument for users: most neobanks are free, or at least very inexpensive. For instance, Oney stands out by offering consumer credit and insurance. A successful example is that of German bank N26, with more than 8 million clients in 24 markets. Its users appreciate the always-on customer service and modern debit card designs. However, neobanks are dependent on fundraising and face the challenge of monetizing customer relationship. 

One of the main drivers of their success is their adaptation to technological evolutions. Neobanks have been able to take advantage of the loss of interest in traditional banking, especially among the younger generation. They are also very present on social media, as shown by Revolut on LinkedIn. Gen-Zers prefer digital communication and wishes to better manage its finances. Free neobanks occupy a small part of the market and other neobanks are inexpensive, which makes them attractive for the digital generation. 

What are the advantages of neobanking for retailers?

Retailers mainly use neobanks to drive sales by offering: 

  • instant payment methods, such as instant transfers and single-use virtual card payments; 
  • cashback possibilities and discount on specific products that may attract clients. 

Neobanks also help retailers create customer loyalty by offering a simplified user experience and loyalty programs. Payment processes are made easier thanks to connected interfaces and additional services for businesses, such as Qonto’s payment notifications. 

What can consumers expect from neobanks? 

Consumers can benefit from offers tailored to their needs. Neobanks provide simple and efficient products as well as budgeting tools in real-time. Moreover, banking fees are usually lower, with yearly fees from 12 to 30 euros and cheaper card maintenance fees. Account management fees are also more transparent and cost less than those of traditional banks. However, this brings up concerns regarding the profitability of neobanking. 

Banking operations are made easier as neobanks work on simplifying user experience. For instance, closing an account while easily registering can be done in a few clicks only. This is necessary to keep up with a trend among the clients, who visit branches less and less frequently. According to Éric Delannoy, “neobanks’ mobile services are twice as popular among the 18-34 age group and the upper middle class”. 

What is at stake for neobanks?

In a world where digitalization prevails, neobanks face a major security and compliance challenge. In France, the ACPR (Prudential Control and Resolution Authority) plays an important role in watching and controlling the new financial players, ensuring that legal and regulatory requirements for consumer protection are respected. However, some believe that neobanks are less secure than traditional banks because of recent cases of fraud and data hacking. Think of Revolut, for instance: numerous users have been hacked, and only a few were refunded. 

Being dependent on technology is another major challenge for neobanks, who entirely rely on digital platforms. “All businesses rely on information. Traditional banks use legacy systems that don’t adapt easily to change. API could be a solution to renew the system, but in the end, technology is more of an asset for neobanks than it is for traditional banks”, explains our expert. 

The impact of neobanks on competition in the banking sector is concerning. Even if most clients see them as additional services only, neobanks intend to become their clients’ main bank. To achieve this goal, they will have to broaden their offers and include key elements such as check deposit and consumer credit and mortgage. Such development requires considerable investment. 

“In a nutshell, neobanks play a key role in driving the evolution of the banking sector, fostering competitiveness and innovation, particularly in terms of customer experience.” 

They provide considerable advantages for clients, retailers and traditional banks, such as ease of use, lower costs and personalized services. However, there are still many challenges to tackle, including security, compliance and profitability.  

In order to succeed, neobanks will have to focus on: 

  • securing transactions, 
  • data protection, 
  • and exploring new ways to make money. 

Their ability to adapt to an ever-changing environment and to new technologies like AI and blockchain will determine their success and impact on the overall banking industry. 

Could neobanks reshape the way we handle our finances and transform our relation to money? Only time will tell.